June 19, 2024
Audio platform Pocket FM bags $103M in funding as it eyes global expansion

India-based audio platform Pocket FM has secured $103 million in Series D funding led by Lightspeed Ventures, with participation from Stepstone Group. The company, which counts Tencent and Times Internet as backers, aims to expand into Europe and Latin America after looking at positive results in the U.S. market.

The company has now raised $196 million across multiple rounds and is valued at $750 million, TechCrunch has exclusively learned.

TechCrunch reported last year that the company was in talks with Lightspeed to lead the funding round that it announced today.

How does the platform work?

Pocket FM primarily offers audio series based around short episodes: Users can listen to some series or episodes for free and unlock others by purchasing coins. Instead of adopting a subscription-based approach to let users access all content as Netflix or Spotify do, Pocket FM has found that the pay-as-you-go model is more suitable for the company.

The drawback, from a revenue standpoint, is that users don’t get locked into recurring payment cycles. But it can still pay dividends and attract repeat purchasing: If users want to listen to more content in a series they have to buy coins — like buying level-up items in a game.

The company is also doubling down on the creator economy. Last month, the company said that it plans to invest $40 million into its Wattpad-like writing platform Pocket Novel. Last week, the company’s co-founder Rohan Nayak posted on LinkedIn that more than 90,000 writers had signed up on the platform since February 20. Pocket Novel also pushes users to buy coins to unlock content.

But while both apps have a coin-buying mechanism to unlock content, there is no integration between them at the moment. That means you can’t use the coins you bought on Pocket FM to unlock content Pocket Novel products and vice versa.

Pocket FM also has a limited audiobook vertical where it competes with the likes of Audible with a similar pay-to-unlock strategy. The company is running this product only in India with existing partnerships.

Numbers game

Pocket FM typically optimizes for users spending more time on the platform. To that end, the audio platform has more than 100,000+ hours of content and over 400,000 episodes across genres and languages.

The company’s U.S. expansion — it opened for business there in 2021 — has proved to be a major revenue driver. It said that Pocket FM has crossed $150 million ARR this year — with a $100 million ARR contribution from the U.S. The company is present in other markets, but it counts the U.S. and India as its biggest markets.

The platform has also seen a high level of engagement from its U.S. user base. While globally, users are spending 115 minutes on the audio platform, that average goes up to 135 minutes in the U.S.

The Pocket Novel writing platform, which has local competitors like Omidyar Network-backed Pratilipi, has more than 250,000 writers onboard. The company wants Pocket Novel to clock $100 million in ARR by 2025.

Efforts in GenAI and the creator economy

It is not surprising that Pocket FM is keen to try out generative AI-based features. It has already started testing a tool for writers in the U.S. to convert their writings into audiobooks. The company is working with Eleven Labs to provide writers with an array of 50 AI-powered voices.

The startup noted that it is also internally working on AI-powered tools that will help creators write their stories faster.

While Pocket Novel writers earn through a revenue share program, the startup provides incentives for hitting writing goals. But using AI tools that often generate unreliable or low-quality output means there is a lot of mediocre content on the platform.

Nayak told TechCrunch that essentially it is a platform’s job to filter out the noise.

“You need to filter out the noise and make sure you filter out the high-quality content which you then make available to listeners. The way we see AI at least in our context, it’s more about how you use AI to unlock productivity and efficiency gains for creators for writers,” he said.

Pocket FM says that some writers on the platform earn more than $3,000 per month but it didn’t give information about average overall income. The company doesn’t enforce an exclusivity clause when creators are onboarding the platform, but the startup said that it has some deals in place to own the IP.

Lightspeed partner Harsha Kumar said that while the appetite for audio content is global, Pocket FM will need to cater to local tastes in different geographies.

Platforms that rely on user-generated content often skew toward popular creators when it comes to visibility and earnings. Kumar believes a honed recommendation algorithm will play a key part in ensuring parity.

“This is always a tough balance. Companies can try many things all the way from hyper-personalization for consumers to using AI assistants to help creators get better and boost their earnings. I believe the platform’s recommendation algorithms have a huge role to play — whether the platform recommends popular content or it recommends content per your taste,” she said.

Future plans for investment and expansion

Separately, the company is already talking to investors for its next round. Abu Dhabi’s sovereign wealth fund ADIA has held talks with Pocket FM for a potential mega funding round, TechCrunch reported last week.

The company didn’t directly respond to that development but said it has received significant investor interest.

“As you’re scaling you see a lot of investor interest generally. But whether it is the new round or not depends on sort of our scaling plan and depends on something materializing,” Nayak said.

“The biggest challenge is to adapt content to appeal to local taste and local context. We have found that some regions prefer stories that have greater local appeal — where characters have relatable names and locations are known and seen for example. A separate execution challenge is of course building and operating a global organization that imbibes the same culture,” Lightspeed’s Kumar said.

Nayak also mentioned that the company is not profitable yet, but it has a high gross margin and is focusing on scaling. The startup has around 800 people and plans to add 500 personnel across the globe.

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